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ANDREA MITCHELL, MSNBC ANCHOR: Right now on a special edition of "ANDREA MITCHELL REPORTS," our exclusive guest, the vice president of the United State, live in our studio, answering the big questions about budget deficits, the stimulus plan, health care, terror trials, and how the White House plans to make good on its promise to bring back the economy and create jobs.

Mr. Vice President, welcome. Good to see you, thank you for coming.

JOSEPH BIDEN, VICE PRESIDENT OF THE UNITED STATES: Good to be back. Happy to be here.

MITCHELL: First of all the budget and these deficits -- deficits, red ink as far as the eye can see. Even if you achieve your very optimistic goals and manage to bring down some of these deficits by 2015, they go back up again by 2019 and 2020 beyond a level that is considered sustainable.

Larry Summers, before he was in the Obama White House, used to say how long can the world's greatest borrower remain the world's biggest power? Have we reached the point where our deficits have become a national security issue?

BIDEN: No, we haven't reached that yet. If we don't do something about it -- and that's what the president is trying to do -- if we don't do something about it, they could and may become a national security issue. That's why the president, in this budget, is proposing a long-term fix for how we begin to bring down spending, in addition to which proposing to have a fiscal commission made up of democrats, republicans leading people, not unlike the Greenspan Commission years ago which actually dealt with Social Security.

MITCHELL: But this one really would be toothless in that it would not be Congressionally mandated. You had the shot at having it congressionally mandated and some would argue that, obviously republicans ran away from it, Mitch McConnell and others who sponsored it, seven republicans ran in the other direction. But at the same time, the president didn't fight for it.

BIDEN: Well, look, I would argue the president did fight for it, but let's just cut to the chase here. The bottom line is that we have a short-term and a long-term deficit problem. In the short term, though, we also have an economic growth problem. And as "The New York Times" said today, the alternative to not stimulating the budget this year would be greater deficits, would be less employment, would be a return possibly even to a new recession.

So we've inherited a situation where the debt was $1.3 trillion the day we raised our right hand. That's what we inherited. I'm not making -- I'm not blaming anybody, that's the reality. We ended up with a recession, where the economy was shrinking at 6 percent per year. That's -- it was shrinking that. Now, last quarter, it's growing at 6 percent per year.

We've laid out -- the financial institutions are stabilized now. We are in the ground floor, in a sense, to begin to rebuild this economy. But you can't do it, Andrea, unless you invest in the things that will grow the economy like a new energy policy, a new education policy...

MITCHELL: Well, let's talk about some of those investments. The stimulus plan...

BIDEN: Yes.

MITCHELL: ... how does even the most optimistic projection from you all, 1.5 million jobs, how does that even make a dent in the 10 million job deficit?

BIDEN: Well, it doesn't in one sense, but look at it another way. Had we not acted, we would be 12 million job deficit. We would not have lost just 7 million this year, we would have lost 9 million jobs just this year. And so, it's awful hard to prove a negative. It's awful hard to say to someone who is unemployed that look, we saved or created 2 million jobs, as the Congressional Budget Office says we have, and we will create more jobs.

But I think the only thing that is going to really will change attitudes out there, Andrea, is I think you're going to see by early spring all through next year each month us creating jobs. Instead of a deficit each month of losing jobs, you're going to see jobs being created. That, in turn, is going to begin to build confidence. And the president is up in New Hampshire today talking about how we're going to help small businesses actually expand.

MITCHELL: Well, in fact, in the Senate, Judd Gregg and Bernie Sanders both joined in and said you cannot take TARP money, money that was intended to bailout the financial system, and use it for the small business initiatives that the president is announcing in New Hampshire today. So you're going to be blocked in the Senate, conceivably, from even doing what he is proposing.

BIDEN: We're going to fight that, because look, we've helped Wall Street. It's high time we help Main Street. You know, most to all the money is being paid been paid back, we've got a significant portion of that TARP money paid back. Now's the time to give it to -- look, if you're a small business person in Concord, New Hampshire, you don't go to the big banks, you go to a local bank. Local banks not lending any money because they're not able to do it. We have got to generate small business, we've got to -- and they're -- that's the engine of employment.

MITCHELL: Well, a lot of small business people are worried about their health care costs.

BIDEN: Sure, they are.

MITCHELL: And we know that there's so much anger out there. The verdict from the Massachusetts voter, where they do have health care in that state...

MITCHELL: But the great irony is that people were saying they don't like the Obama health care plan, they don't like the democratic plan. And small business people are saying, until we have some certainty about taxes and health care, we can't start hiring.

BIDEN: Well, look, we've given them some certainty about taxes, we've cut their taxes. We cut their taxes in the TARP -- excuse me, in the Recovery Act and the president in the State of the Union announced how our budget has tax cuts. For example, zero capital gains tax, incentives if they hire new employees, tax breaks across the board.

Secondly what we want to put in place here is put in place the opportunity for them to actually go out and restore inventory, borrow money, expand and build.

And with regard to health care, the biggest loser in the health care package going down, temporarily -- because we don't believe it's gone -- is small businesses. Small businesses are the ones being killed. They're getting hit with those premium hikes of 20 percent, 30 percent.

MITCHELL: Well, Politico was reporting today that there was a big gamble last year, do you attack the deficits head on or do you take on health care, and that the White House really lost that gamble. You are reported by "The New York Times" to have said at a budget meeting a year ago that health care was just too big a deal to take on right away.

BIDEN: Look...

MITCHELL: Your advice -- maybe you changed your advice later on, but your advice wasn't heeded. Are you sorry that it wasn't?

BIDEN: No. Let me tell you, the president was right from the beginning. The way to reduce the deficit is one of the three ways to do that is to get a health care plan. If you do not have a health care proposal that's fundamentally different than exists now, the deficit is going to increase exponentially. What most people don't understand -- they talk about entitlements and they talk about Social Security and Medicare, all legitimate. Forty-seven cents of every dollar spent on health care now is spent on Medicare and Medicaid.

MITCHELL: Was it a mistake not to write the bill in the White House? Why let the Senate Finance Committee and Max Baucus take all summer, really wear out the patience of the American public -- why take so long? Why not go with them and give them a plan?

BIDEN: Well, look, we gave them five principles we wanted to have met. They eventually got there. We can argue Monday morning quarterback on whether we should have done A, B or C, but we don't believe this is over yet. We still, as the president said in the State of the Union, are going to fight for this health care proposal.

And now we're out there for the next month or so, working with the republicans. They say they want to help. You broadcast extensively the president's meeting with the republican Congressmen up in -- the retreat up in Baltimore.

MITCHELL: Only hours after that retreat I was sitting with moderate member House republican and a prominent democratic senator. And the House republican was claiming this was great, but we never even get our letters answered from the White House. And the democratic senator -- a veteran, one of your former colleagues -- said, well don't be surprised, I don't get my letters answered either.

Has this White House -- does this White House have some responsibility for the gridlock in this town? For not being open enough to the Hill and not doing basic Congressional relations very well?

BIDEN: Obviously, I would argue no. But, look, it's not worth fighting over. If they think that, then we have to do something about it. You know, I know the Hill pretty well.

MITCHELL: You do.

BIDEN: I served up there a long time. I'm up there a great deal, everything from going up to the gym to work out, to hang out with folks, to going to their offices, to having them down in my office. What I have found for the first time in my career, I was elected to the Senate seven times in a row and this is the first time I can remember when there's been a policy decision made by the opposition party that everything was going to require a supermajority.

MITCHELL: Is it possible now that your Senate seat you held for 36 years is going to go republican because your son has decided not to run? I know you said -- you told the "Today" show that he has very major cases as the attorney general, but isn't it more important to save this seat? Are the headwinds as a result of the Massachusetts election discouraging a lot of star democrats from running?

BIDEN: Well, I don't think so, at least not in my son's case. He basically made that decision at Thanksgiving. This was a question of how it got rolled out and because the party wanted to make sure we had -- we have a first-rate candidate now. We have a county executive, young guy names Chris Kunz whose has two graduate degrees...

MITCHELL: The republican is the prohibitive favorite, Matt Cassel.

BIDEN: Well, by the way, if you take a look at my state, my state is 49 percent -- 48 percent democrat, 20-some percent republican. The fact of the matter is that I predict to you that Chris Kunz is going to surprise the devil out of you.

MITCHELL: Are you surprised by the tea party? By not just the anger out there, but the strength and the energy of this protest movement? It feels like the Perot movement felt and it feels like it's going someplace or is it just republican?

BIDEN: I don't want to dismiss it. I don't see it as having the kind of energy the Perot movement had. It may, I'm not a prognosticator here. But what I do see is, unlike the Perot movement, it is a very split movement. There's nothing uniform about the tea party. They're great -- and you can see by them trying to set up their first convention.

I mean, so the Perot movement was pretty focused, it was pretty narrow -- not narrow but pretty clear, and everyone was sort of on the same page. I don't get the sense of that. But, again, you know, the old joke, I don't do politics like that anymore, but it seems to me a bit different.

MITCHELL: Now one of the big issues also coming out of Massachusetts and Scott Brown is anger about the terror decisions, the anti-terror decisions, now the terror trials. No notification to New York City. Now, clearly the administration now has to back off on Khalid Shaikh Mohammed. Just now, Jim Webb joined Lindsey Graham in proposing no federal civilian trials, no civilian trials for these detainees. The administration seems to be -- the Justice Department and the White House aren't talking to each other.

BIDEN: Well, we are talking to one another and I think...

MITCHELL: What are some of these words?

BIDEN: Now look, here's what I think happened. Let's just remind everybody, you know, right after 9/11, not but a month after 9/11, Richard Reid tried to blow up a plane just like the Christmas bomber. Got off the plane...

MITCHELL: And the Bush White House tried him in civilian court.

BIDEN: And they read him his Miranda rights, tried him in civilian courts, he's in jail the rest of his life. We've tried over 300 terrorists in the courts. I just think this is a moment, this is a moment where there is a tendency to, in this sort of dysfunctional town right now, to yield a little bit too quickly to...

MITCHELL: Well, Lee Hamilton, who is a supporter of President Obama, Lee Hamilton, the former co-chair of 9/11 Commission testified last week that the Obama White House was so focused on health care that it has missed focusing on the anti-terror threat. The Christmas bomber was really a good wake-up call to you.

BIDEN: Look, the Christmas bomber, the president made clear there were mistakes, you had agencies not talking to agencies. But I've been in every one of those national security meetings relating to terrorism. We have prevented -- the intelligence community, our national security apparatus had prevented serious attacks on this country. We have never taken our eye off the ball. That was a mistake. It was a mistake in that there wasn't communications to the degree that there...

BIDEN: There are threats out there that have not gone away. We have, in a sense -- not a sense -- we've isolated al Qaeda out of Afghanistan and Pakistan. It is on the run. We've knocked off most of their...

MITCHELL: But Yemen is a growing threat.

BIDEN: Yemen is a growing problem. And Yemen and the African continent, and West Africa -- East Africa is a problem as well. And look, this is something you just got to stay on top of totally. I mean, this is something that's not going to go away overnight.

MITCHELL: Don't Ask, Don't Tell -- the president said he wants to repeal it, but many people, including the chairman of the Armed Services Committee, say much too slowly, that something needs to be done much more quickly.

BIDEN: You also have, I suspect, an awful lot of other -- other folks in the House and Senate saying don't do anything at all.

When we came into office, I sat in the Oval Office with the president, the chairman of the joint chiefs of staff, the secretary of Defense and they said gentlemen, begin to prepare. I'm going to give you an opportunity to lay the...

BIDEN: ... but this is a long time. I mean, this is a very big problem, it's a very big issue to move.

If you notice, the criticism coming now is that why are we doing this at all in the middle of an economic recovery effort? Why are we focusing on this at all? Because it's the right thing to do. And in order to make it work, like 24 of our allies who have policies that allow gays to fully participate as well as straight folks, they have no problem with it. But it's a matter of introducing it. By this year's end, we will have eliminated the policy.

MITCHELL: Some other quick questions. Haiti -- the heartbreaking stories of these children, these orphans and some who are not orphans, who have been attempted to be taken away by perhaps well-intentioned groups. You've got a government that is in collapse, trying to re-establish itself. They're trying to protect their own children, but is there any way to resolve this and for the U.S. government to be more interactive in saving more children from Haiti? And what would your message be to all of these families who are e-mailing us, how do we adopt a child?

BIDEN: Our message is that we have to have a process here so that these kids aren't trafficked, so these kids are not taken advantage of.

I believe that Baptist organization was well intended, but they didn't go by the normal procedures. As you said, there are parents who park their children in an orphanage while they try to get things squared away since they lost everything out there. There are genuine orphans out there, who have no parents and haven't had them for a while.

We're working closely with the United Nations and with the Haitian government. There will be no child will be removed from Haiti for an adoption purpose unless the president of Haiti and prime minister signs off on it.

MITCHELL: Is that too much red tape?

BIDEN: No. Look, the other side of it is, you yield to the possibility of these children being victimized. And so as long as they're in a safe, secure place where we're providing food and shelter and sustenance to them, it's better to do it properly so that we don't end up with children being victimized than it is to rush in, take all the children out and find out a percentage of those children are actually being trafficked or victimized.

MITCHELL: I want to ask you about Iran where more executions of people in the protest movement have taken place and great concerns about the coming days, the anniversary of the Iranian Revolution. Is it time, as Richard Haas of the Council of Foreign Relations has said, to think about regime change? We've gotten nowhere in outreach terms.

BIDEN: Well, the truth of the matter is, I think the people of Iran are thinking about -- the very people marching, they're thinking about regime change. The most important thing for us to do is this time -- and we've done it well -- is this time to reach out, demonstrate that we're not the problem, our hand gets rejected and be able to have the whole world stay with us as we move toward serious sanctions against the Iranian irangovernment.

But, look, when they acted as they did, when the first protests broke out and people were brutalized, they lost their moral credibility in their own country and around the region. And I think they're sowing the seeds for their own destruction, that is the leadership, and you see that response. Does that mean that everyone who is opposed to the present regime is pro-western? No, but it means they're opposed to the present regime.

They're sowing the seeds of their own destruction in terms of being able to hold on to power. We are moving with the world, including Russia and others, to put sanctions on them. I think that we've moved in the right direction in a measured way that's going to end up -- we're going to end up much better off than we would have had we tried to go in there and physically tried to change the regime.

MITCHELL: I know you've got to go. You've been a very busy man. Do you and Mrs. Biden ever get to the movies? As Academy Award picks, any favorites among the Oscar nominees?

BIDEN: Yes, as a matter of fact, we do. And I think one of the odds on favorites is -- Jill didn't go with me, but -- is this, this new program that I looked at it, wished I was seeing at it in 3D and you sit there and watch this science fiction thing unfold in front of you. I think...

MITCHELL: "Avatar"?

BIDEN: "Avatar," the magic of it is kind of overwhelming. There are some other real good ones out there, but I predict "Avatar" will win.

MITCHELL: All right, we'll hold you to that.

BIDEN: Thank you.

MITCHELL: Mr. Vice President, come often, we love having you here. Thank you very much.